Before getting to this point...
Before getting to this point on a Saturday night, there are several steps that can make your racing endeavor more accountable. Photo by Kevin Thorne
Auto racing is a multibillion-dollar industry-that's right, multibillion-and short of any major economic downturn, the projections are that it will keep growing. This includes the racing parts businesses and the revenue generated by the entertainment side of the business.
If you are a racer, you support the aftermarket and the racing parts side of the business through the purchases you make to support your race team and the activities that support the team. Your role in this industry, from an economic system perspective, is to supply entertainment to the race fans. That is the value-added function that racers supply. Racers are in fact part of a much larger entertainment machine.
You may not think of your individual team as a racing business, but it is-especially if you have any type of sponsor and you are providing value to that sponsor through advertising, product development, and general awareness of the sponsor's product to the race fans that may see your car. That is the chief reason that we have sponsors-to help them develop specific brand awareness. The goal is to motivate fans to purchase the product or services advertised on the car you race. You may generate other forms of revenue via prize money from winning races or by offering a good or a service to other racers that enables you to earn some money. That all sounds like a business model to me.
It's a good practice to log...
It's a good practice to log and keep track of expenses covering everything from tires to crew members. Photo by Kevin Thorne
The reality of the situation is that you may not think of your racing endeavor as a business, especially if you are merely racing for fun. Like with any business, though, there are some things you should be doing to take full advantage of your status as a business. Of course, most Saturday night race teams operate at a loss due to the fact that the costs are much greater than the potential rewards.
Just as soon as you start to handle money in any undertaking, things can get a bit more complex. That does not mean that you will have to work harder, but there are things you need to be doing. I am not a lawyer, accountant, or a tax advisor. My advice is to consult a professional in one or more of these fields if you would like to pursue more in-depth business practices with your team. Even beyond that, I recommend seeking advice from a professional in your area that is familiar with the local laws and ordinances as they apply to this type of business.
In the many years I have been racing, I have had many conversations with some very highly placed money managers, many of whom were also CPAs. I have had conversations centered on profitability and how long you can reasonably expect to lose money in a business. We were talking specifically about racing businesses. The comment I remember the most from one of these guys was this: "The government can't penalize you for being a bad business person. The real question is documentation and intent. If you keep poor records and it is clear that the intent is to defraud and or misrepresent, then you will get in trouble. If you are trying hard and the records reflect this effort, you could lose money forever. Not that I recommend that, but the real penalty is losing money." I found this comment both telling and interesting. Remember, this was one man's opinion-but it made sense.
This racer had to make a last-minute...
This racer had to make a last-minute run to the parts trailer for springs. Hopefully, in his haste, he didn't forget to record everything about the transaction. Photo by Kevin Thorne
The first and most important thing you can do is to start keeping some simple cost records. Just like any business, you need to keep exacting records. This should start with what you are spending on the racing operations on a week-by-week basis. You need to understand the cost structure it takes to go racing as well as the income side of the equation. This is really much easier than it sounds.
It is as simple as starting a checking account for your racing operations. Keeping a good check register is a great way to track costs. Even if you are funding your racing operations out of your pocket, you need to start a racing account. If you have not yet formalized your racing operations with the local and state government, you should still be tracking the flow of money going out and you need to track any monies that flow into the racing operations. It is too easy to blend your racing expenditures with your personal expenditures. Please try to avoid this pitfall if at all possible.
The next time you are going to purchase tires or any other products, just stop at the bank first. Open a checking account with the money you are going to use to purchase the tires. It would not hurt to place several extra dollars in the account so you do not run the account dry with the first check you write. It is just that simple to get started.
Now, every purchase you make to support that racing operation in any way should be run through your racing account. If any money is earned from prize money, selling old parts, or contributions from sponsors, you should run these funds through the racing account. That includes travel costs, gate fees, and even the food you buy for the team at the track. You may not want to know how much money you are spending each week, but it is an important data point. If you want to use any of the advantages that come from running your team as a business, you need to get in the habit of documenting your expenditures. This information will give you a very good idea of the amount of money that you are spending each month versus any income you are getting as a result of racing. That is step one.